Custom, Excise & Service Tax Tribunal
Ratnamani Metals And Tubes Ltd vs Ahmedabad-Iii on 26 February, 2024
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench at Ahmedabad
REGIONAL BENCH-COURT NO. 3
Service Tax Appeal No. 11248 of 2016 - DB
(Arising out of OIO-AHM-EXCUS-003-COM-41-15-16 dated 18/03/2016 passed by
Commissioner of Central Excise-AHMEDABAD-III)
Ratnamani Metals And Tubes Ltd ........Appellant
Plot No. 3306 To 3309, Gidc,
Chhatral, Taluka : Kalol,
GANDHINAGAR,
GUJARAT
VERSUS
C.C.E. & S.T.-Ahmedabad-iii ......Respondent
Custom House... 2nd Floor, Opp. Old Gujarat High Court, Navrangpura, Ahmedabad, Gujarat-380009 APPEARANCE:
Shri S Bissa, Advocate for the Appellant Shri H P Shrimali, Superintendent (AR) for the Respondent CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON'BLE MEMBER (TECHNICAL), MR. RAJU Final Order No.10486/2024 DATE OF HEARING: 25.10.2023 DATE OF DECISION: 26.02.2024 RAMESH NAIR The facts of the present case as briefly stated, are that the Appellant M/s. Ratnamani Metals and Tubes Limited is engaged in the manufacturing activity of tubes and pipes made of various types of Metals. During the course of business, the Appellant's company pays remuneration to its Managing director and whole-time directors which has a fixed and variable components. The said directors are paid salary and such incentives as linked to their performance and financial results of the Appellant's company in accordance with the Company's Act. The Department, under the present circumstances had raised demand of service tax under reverse charge mechanism in terms of Sl. No. 5A of Notification 30/2012 - ST dated 20.06.2012 as amended by Notification No. 45/2012 - ST. The adjudicating authority has confirmed the demand along with interest vide Order in Appeal AHM/EXCUS/003/COM/41- 15- 16 dated 18.03.2016.
1.1 Hence the present Appeal.
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2. Shri S. Bissa, Learned Advocate appearing on behalf of the Appellant submits that the department has erred in interpreting the provision of Company's Act,1956 by ignoring the fact that the remuneration in dispute has been paid to its directors in the nature of salary and that there is a well
- defined nature of employer and employee between the Directors and the Company. Therefore, the Department has wrongly categorized the same under services. It has been submitted that Directors of the company in addition to the fixed component of salary are also eligible for such incentives as maybe prescribed by the Company in terms of its performance. He has submitted that the Board resolution sufficiently establishes the appointment of the said directors as employees and has placed reliance on the income tax returns filed by the directors vide form -
16. He has also relied on CBEC Circular No. 115/9/2009- ST dated 31.07.2009 in support of his submissions wherein it has been abundantly clarified that no service tax is leviable on managing directors/whole time directors for being compensated for their performance in term of remuneration. He further submits that the said issue has been decided in a catena of judgments wherein it has been held that remuneration paid to Directors is nothing but salary therefore cannot be classified as service for the sake of levy of service tax. He has relied upon the following judgments in support of their claim:-
M/s Supreme Treves Pvt. Final Order 11736-11737/2023 dated 17.08.2023 Maithan Alloys Ltd. 2020 (33) GSTIL 228 (Tri - Kolkata) Allied Blenders and Distillers Pvt. Ltd. 2019 (24) GSTIL 207 (Tri -
Mumbai) Bengal Beverages Pvt. Ltd. 2020 (11) TMI 633 (Tri - Kolkata) Rent Works India Pvt. Ltd. 2016 (43) STR 634 Vectus Industries Ltd. 2020 (1)TMI 423 (Tri - Allahabad) NRB Industrial Bearings Pvt. Ltd. 2019 (8) TMI 600 (Tri - Mumbai)
3. Shri H.P. Shrimali, Learned Superintendent (AR) appearing on behalf of the department reiterates findings of the impugned order.
4. We have carefully considered the submissions made by both the parties and perused the records. We find that the issue involved in the present
3|Page ST/11248/2016 -DB appeal is whether service tax should be levied on the remuneration paid by the Appellant to its directors under reverse charge mechanism or not. In the light of the records submitted by the Appellants, in terms of Board Resolution and Income tax returns submitted under Form - 16, we are of the considered view that the Directors have been appointed as employees of the Appellant's Company. We find that the matter is no longer res- integra as the same has already been deliberated upon and decided by this Tribunal. The issue has been squarely covered by this Tribunal under similar facts and circumstances. For the said purposes relevant portion of the judgements have been extracted below:-
In the case of Bengal Beverages Pvt. Ltd. v CGST & Excise, Howrah 2020 (11) TMI 633 "8. In the instant case, the only dispute herein is for payment of remuneration in the nature and form of commission based on percentage of profit to whole time directors, which is a fact on record. Section 2(94) of Companies Act, 2013, duly defines 'whole-time director' to include a director in the whole-time employment of the company. A whole-time Director refers to a Director who has been in employment of the company on a full-time basis and is also entitled to receive remuneration. The certificate issued by the company secretory states that the remuneration is given in various form as allowed under the Companies act, 2013. We further find that the position of a whole-time director is a position of significance under the Companies Act. Moreover, a whole-time director is considered and recognized as 'key managerial personnel' under Section 2(51) of the Companies Act. Further, he is an officer in default [as defined in clause (60) of Section 2] for any violation or non-compliance of the provisions of Companies Act. Thus, in our view, the whole-time Director is essentially an employee of the Company and accordingly, whatever remuneration is being paid in conformity with the provisions of the Companies Act, is pursuant to employer-employee relationship and the mere fact that the whole-time Director is compensated by way of variable pay will not in any manner alter or dilute the position of employer-employee status between the company assessee and the whole-time Director. We are thoroughly convinced that when the very provisions of the Companies Act make whole-time director (as also in capacity of key managerial personnel) responsible for any default/offences, it leads to the conclusion that those directors are employees of the assessee company.
9. Further, the judgment of this Tribunal in the case of MAITHAN ALLOYS LTD Versus COMMISSIONER OF C. EX. & S.T., BOLPUR (supra) is squarely applicable to the facts of the case. Further, the Ld. Adjudicating authority has also allowed part of the demand on the ground that there exists an employer-employee relationship between the whole time Directors and the appellant assessee, then the ground of confirming the balance demand that the directors have provided service to the company becomes infructuous and hence cannot survive before the eyes of the law. Since demand of service tax is set aside, penalty and interest are also not sustainable."
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In the case of Allied Blenders and Distillers Pvt. Limited vs. CCE&ST,
Aurangabad reported at 2019 (24) GSTL 207 (Tri. Mumbai), the Mumbai Bench of this Tribunal has made the following observations:-
"5. The short issue involved in the present appeal for determination is whether remuneration paid to the Directors by the appellant is chargeable to Service Tax and the appellants are required to discharge Service Tax under reverse charge mechanism in accordance with Notifications No. 45/2012-S.T., dated 7-8-2012 and 46/2012-S.T., dated 7-8-2012. Revenue's allegation is that the Directors namely, Shri K.R. Chhabria, Shri U.K. Ganguli, Shri Deepak Roy and Shri Jitendra Hemdev, who were paid remuneration during the period July, 2012 to March, 2015 amounting to Rs. 1,01,02,55,057/- by the appellant, Service Tax of Rs. 12,48,67,525/- was required to be discharged by the appellant. Opposing the said contention of the Revenue, the appellant has argued that the amount paid to the said Directors are in the nature of the salary paid to them, since the said Directors are whole time directors and employees of the company, accordingly, it is not a 'service' within the definition of 'service' prescribed under Section 65B(44) of the Finance Act, 1994.
....16. Also, from the documents produced by the appellant it is crystal clear that the Directors who are concerned with the management of the company, were declared to all statutory authorities as employees of the company and complied with the provisions of the respective Acts, Rules and Regulations indicating the Director as an employee of the company. No contrary evidence has been brought on record by the Revenue to show that the Directors, who were employee of the appellant received amount which cannot be said as ' salary' but fees paid for being Director of the company. The Income Tax authorities also assessed the remuneration paid to the said directors as salary, a fact cannot be ignored. The judgments cited by the revenue cannot be applied to the present case as the facts are different and the finding of Income tax authorities accordingly also different in the said case."
In the case of Supreme Treon Pvt. Limited v Commissioner of Central Excise, CESTAT - Ahmedabad this Tribunal under identical facts and circumstances has passed the following order:-
"Since the facts of the matter in hand are similar to the one as decided by the above-mentioned decision of this Tribunal. Following the judicial discipline, we follow the same and hold that impugned order-in-original is without any merit. The appeals are allowed"
We also consider the submissions made by the Learned Counsel with regards to clarification issued by the Central Board of Excise and Customs vide Circular No. 115/09/2009 - ST dated 31.07.2009 that states that the remunerations paid to such Directors would not be considered "commission' as envisaged under Service tax category. The relevant portion has been produced below:
"it is clarified that remunerations paid to Managing Director / Directors of
5|Page ST/11248/2016 -DB companies whether whole-time or independent when being compensated for their performance as Managing Director/Directors would not be liable to service tax.
05. In view of the aforesaid discussions and findings, we are of the considered view that the directors of the Appellant are employees of the Appellant Company and following the judicial discipline on the similar issue, we hold that the impugned order is not sustainable, hence the same is set aside as it is without any merit. The appeal is allowed.
(Pronounced in the open court on 26.02.2024) (RAMESH NAIR) MEMBER (JUDICIAL) (RAJU) MEMBER (TECHNICAL) Raksha